Monday, October 18, 2010

"An almost frictionless machine for stripping wealth out of the heart of the country, one that perfectly encapsulates where we are as a nation."

America on Sale

Our cash-strapped country is auctioning off its highways, ports and even parking meters, finding eager buyers in the Middle East

10/18/10

From the Book, GRIFTOPIA by MattRolling Stone MagazineCopyright 2010

In the summer of 2009 I got a call from an acquaintance who worked in the Middle East. He was a young American who worked for something called a sovereign wealth fund, a giant state-owned pile of money that swims around the world in search of things to buy.

Sovereign wealth funds, or SWFs, are huge in the Middle East. Most of the bigger oil-producing states have massive SWFs that act as cash repositories (with holdings often kept in dollars) for the revenues generated by, for instance, state-owned oil companies. Unlike the central banks of most Western countries, whose main function is to accumulate reserves in an attempt to stabilize the domestic currency, most SWFs have a mission to invest aggressively and generate huge long-term returns. Imagine the biggest and most aggressive hedge fund on Wall Street, then imagine that that same fund is fifty or sixty times bigger and outside the reach of the SEC or any other major regulatory authority, and you've got a pretty good idea of what an SWF is.

My buddy was a young guy who'd come up working on the derivatives desk of one of the more dastardly American investment banks. After a few years of that he decided to take a step up morally and flee to the Middle East to go to work advising a bunch of sheiks on how to spend their oil billions.

Aside from the hot weather, it wasn't such a bad gig. But on one of his trips home, we met in a restaurant and he mentioned that the work had gotten a little, well, weird.

"I was in a meeting where a bunch of American investment bankers were trying to sell us the Pennsylvania Turnpike," he said. "They even had a slide show. They were showing these Arabs what a nice highway we had for sale, what the toll booths looked like . . ."

I dropped my fork. "The Pennsylvania Turnpike is for sale?"

He nodded. "Yeah," he said. "We didn't do the deal, though. But, you know, there are some other deals that have gotten done. Or didn't you know about this?"

As it turns out, the Pennsylvania Turnpike deal almost went through, only to be killed by the state legislature, but there were others just like it that did go through, most notably the sale of all the parking meters in Chicago to a consortium that included the Abu Dhabi Investment Authority, from the United Arab Emirates.

There were others: A toll highway in Indiana. The Chicago Skyway. A stretch of highway in Florida. Parking meters in Nashville, Pittsburgh, Los Angeles, and other cities. A port in Virginia. And a whole bevy of Californian public infrastructure projects, all either already leased or set to be leased for fifty or seventy-five years or more in exchange for one-off lump sum payments of a few billion bucks at best, usually just to help patch a hole or two in a single budget year.

America is quite literally for sale, at rock-bottom prices, and the buyers increasingly are the very people who scored big in the oil bubble. Thanks to Goldman Sachs and Morgan Stanley and the other investment banks that artificially jacked up the price of gasoline over the course of the last decade, Americans delivered a lot of their excess cash into the coffers of sovereign wealth funds like the Qatar Investment Authority, the Libyan Investment Authority, Saudi Arabia's SAMA Foreign Holdings, and the UAE's Abu Dhabi Investment Authority.

Here's yet another diabolic cycle for ordinary Americans, engineered by the grifter class. A Pennsylvanian like Robert Lukens sees his business decline thanks to soaring oil prices that have been jacked up by a handful of banks that paid off a few politicians to hand them the right to manipulate the market. Lukens has no say in this; he pays what he has to pay. Some of that money of his goes into the pockets of the banks that disenfranchise him politically, and the rest of it goes increasingly into the pockets of Middle Eastern oil companies. And since he's making less money now, Lukens is paying less in taxes to the state of Pennsylvania, leaving the state in a budget shortfall. Next thing you know, Governor Ed Rendell is traveling to the Middle East, trying to sell the Pennsylvania Turnpike to the same oil states who've been pocketing Bob Lukens's gas dollars. It's an almost frictionless machine for stripping wealth out of the heart of the country, one that perfectly encapsulates where we are as a nation.

When you're trying to sell a highway that was once considered one of your nation's great engineering marvels — 532 miles of hard-built road that required tons of dynamite, wood, and steel and the labor of thousands to bore seven mighty tunnels through the Allegheny Mountains — when you're offering that up to petro-despots just so you can fight off a single-year budget shortfall, just so you can keep the lights on in the state house into the next fiscal year, you've entered a new stage in your societal development.

You know how you used to have a job, and a house, and a car, and a wife and a family, and there was food in the fridge — and now you're six months into a drug habit and you're carrying toasters and TVs out the front door every morning just to raise the cash to make it through that day? That's where we are. While a lot of this book is about how American banks used bubble schemes to strip the last meat off the bones of America's postwar golden years, the cruelest joke is that American banks now don't even have the buying power needed to finish the job of stripping the country completely clean.

For that last stage we have to look overseas, to more cash-rich countries we now literally have to beg to take our national monuments off our hands at huge discounts, just so that our states don't fall one by one in a domino rush of defaults and bankruptcies. In other words, we're being colonized — of course it's happening in a clever way, with very careful paperwork, so we have the option of pretending that it's not actually happening, right up until the bitter end.

Let's go back in time, to the early seventies. It's 1973, and Richard Nixon's White House makes the fateful decision to resupply the Israelis with military equipment during the 1973 Arab-Israeli War.

This pisses off most of the oil-producing Arab states, and as a result, the Organization of the Petroleum Exporting Countries, or OPEC — a cartel that at the time included Saudi Arabia, Kuwait, the UAE, Libya, Iraq, and Iran, among others — decided to make a move.

For the second time in six years, they instituted an embargo of oil to the United States, and eventually to any country that supported Israel. The embargo included not only bans of exports to the targeted countries, but an overall cut in oil production.

The effect of the 1973 oil embargo was dramatic. OPEC effectively quadrupled prices in a very short period of time, from around three dollars a barrel in October 1973 (the beginning of the boycott) to more than twelve dollars by early 1974. The United States was in the middle of its own stock market disaster at the time, caused in part by the dissolution of the Bretton Woods agreement (the core of which was Nixon's decision to abandon the gold standard, an interesting story in its own right). In retrospect we ought to have known we were in trouble earlier that year because on January 7, 1973, then–private economist Alan Greenspan told the New York Times, "It is very rare that you can be as unqualifiedly bullish as you can be now." Four days later, on January 11, the stock market crash of 1973–74 began. Over the course of the next two years or so, the NYSE would lose about 45 percent of its value.

So we're in this bad spot anyway, in the middle of a long period of decline, when on October 6 Egypt and Syria launch an attack on the territories Israel had captured in the 1967 Six-Day War. The attack takes place on the Yom Kippur holiday and the war would become known as the Yom Kippur War.

Six days later, on October 12, Nixon institutes Operation Nickel Grass, a series of airlifts of weapons and other supplies into Israel. This naturally pisses off the Arab nations, which retort with the start of the oil embargo on October 17.

Oil prices skyrocketed, and without making a judgment about who was right or wrong in the Yom Kippur War, it's important to point out that it only took about two months from the start of the embargo for Nixon and Kissinger to go from bluster and escalation to almost-total surrender.

On January 18, 1974, Kissinger negotiated an Israeli withdrawal from parts of the Sinai. By May, Israel agreed to withdraw from the Golan Heights.

This is from the U.S. State Department's own write-up of the episode:

Implementation of the embargo, and the changing nature of oil contracts, set off an upward spiral in oil prices that had global implications. The price of oil per barrel doubled, then quadrupled, leading to increased costs for consumers world-wide and to the potential for budgetary collapse in less stable economies . . . The United States, which faced growing oil consumption and dwindling domestic reserves and was more reliant on imported oil than ever before, had to negotiate an end to the embargo from a weaker international position. To complicate the situation, Arab oil producers had linked an end to the embargo to successful U.S. efforts to create peace in the Middle East.

Hilariously, the OPEC states didn't drop the prices back to old levels after the American surrender in the Yom Kippur episode, but just kept them flat at a now escalated price. Prices skyrocketed again during the Carter administration and the turmoil of the deposition of the shah of Iran, leading to the infamous "energy crisis" with its long gas lines that some of us are old enough to remember very well.

Then, after that period, the United States and the Arab world negotiated an uneasy détente that left oil prices at a relatively steady rate for most of the next twenty-five years or so.

So now it's 2004. The United States and George W. Bush have just done an interesting thing, going off the map to launch a lunatic invasion of Iraq in a move that destabilizes the entire region, again pissing off pretty much all the oil-rich Arab nationalist regimes in the Middle East, including the Saudi despots — although, on the other hand, fuck them.

The price of oil pushes above forty dollars a barrel that year and begins a steep ascent. It's also around then that the phenomenon of the sovereign wealth fund began to evolve rapidly. According to the Sovereign Wealth Fund Institute:

Since 2005, at least 17 sovereign wealth funds have been created. As other countries grow their currency reserves, they will seek greater returns. Their growth has also been skyrocketed by rising commodity prices, especially oil and gas, especially between the years 2003–2008.

Dr. Gal Luft, director of a think tank called the Institute for the Analysis of Global Security, would later testify before the House Foreign Affairs Committee about the rise of the SWFs. This is what he told the committee on May 21, 2008:

The rise of sovereign wealth funds (SWF) as new power brokers in the world economy should not be looked at as a singular phenomenon but rather as part of what can be defined a new economic world order. This new order has been enabled by several megatrends which operate in a self-reinforcing manner, among them the meteoric rise of developing Asia, accelerated globalization, the rapid flow of information and the sharp increase in the price of oil by a delta of over $100 per barrel in just six years which has enabled Russia and OPEC members to accumulate unprecedented wealth and elevate themselves to the position of supreme economic powers. Oil-rich countries of OPEC and Russia have more than quadrupled their revenues, raking some $1.2 trillion in revenues last year alone. At $125 a barrel oil they are expected to earn close to $2 trillion in 2008.

In fact, oil would go up to $149 that summer. Luft went on:

SWF are pouring billions into hedge funds, private equity funds, real estate, natural resources and other nodes of the West's economy. No one knows precisely how much money is held by SWFs but it is estimated that they currently own $3.5 trillion in assets, and within one decade they could balloon to $10–15 trillion, equivalent to America's gross domestic product.

Luft's analysis would square with a paper written by the San Francisco branch of the Federal Reserve Bank in 2007, which concluded that "analysts put current sovereign wealth fund assets in the range of $1.5 to 2.5 trillion. This amount is projected to grow sevenfold to $15 trillion in the next ten years, an amount larger than the current global stock of foreign reserves of about $5 trillion."

The San Francisco paper noted that most SWFs avoid anything like full disclosure, and there is little information available about what they may have invested in. One source I know who works at a Middle Eastern SWF explains that this is very much part of their investment strategy.

"They don't want publicity," he says. "They just want to make the money. That's one reason why you almost always see them buying minority stakes, as majority stakes would cause some countries to make issue of foreign ownership of investments. Sometimes it's multiple SWFs buying minority stakes in the same investment. But it's always thirty percent, twenty-five percent, and so on."

We've seen how banks like Goldman Sachs and Morgan Stanley helped engineer an artificial run-up in commodity prices, among other things by pushing big institutional investors like pension funds into the commodities market. Because of this lack of transparency, we can't know exactly how much the SWFs also participated in this bubble by pouring their own money into energy commodities through hedge funds and other avenues.

The CFTC's own analysis in 2008 put the amount of SWF money in commodity index investing at 9 percent overall, but was careful to note that none of them appeared to be Arab-based funds. The oddly specific insistence in the report that all the SWF money is "Western" and not Arab is particularly amusing because it wasn't like the question of Arab ownership was even mentioned in the report — this was just the Bush administration enthusiastically volunteering that info on its own.

Adam White, director of research at White Knight Research and Trading, says not to put too much stock in the CFTC analysis, however.

"I am doubting that result because I think it would be easy for an SWF to set up another company, say in Switzerland, or work through a broker or fund of funds and therefore not have a swap on directly with a bank but through an intermediary," he says. "I think that the banks in complying with the CFTC request followed the letter of the law and not the spirit of the law."

He goes on: "So if a sovereign wealth fund has an investment in a hedge fund — which they have a bunch — and that hedge fund was then invested in commodities, I expect that a bank would report that as a hedge fund to the CFTC and not a sovereign wealth fund. And their argument would be, 'How can we know who the hedge fund's investors are?' — even if they know darn well.

"I think that this is very much a national security issue because the Arab states might be pumping up oil prices and siphoning off huge amounts of money from our economy," he adds. "A rogue state like Iran or Venezuela could use their petrodollars to keep us weak economically."

We know some things about what happened between the start of the Iraq war and 2008 in the commodities market. We know the amount of speculative money in commodities exploded, that between 2003 and 2008 the amount of money in commodities overall went from $13 billion to $317 billion, and that because virtually all investment in commodities is long investment, that nearly twenty-five-fold increase necessarily drove oil prices up around the world, putting great gobs of money into the coffers of the SWFs.

There is absolutely nothing wrong with oil-producing Arab states accumulating money, particularly money from the production of oil, a resource that naturally belongs to those countries and ought rightly to contribute to those states' prosperity. But for a variety of reasons the United States's relationship to many Arab countries is complicated and at times hostile, and the phenomenon of the wealth funds of these states buying up American infrastructure is something that should probably not happen in secret.

But more to the point, the origin of these SWFs is not even relevant, necessarily. What is relevant is that these funds are foreign and that thanks to a remarkable series of events in the middle part of the last decade, they rapidly became owners of big chunks of American infrastructure. This is a process of a country systematically divesting itself of bits and pieces of its own sovereignty, and it's taking place without really anyone noticing it happening — often not even the people asked to vote formally on the issue.

What was that process?

The explosion of energy prices — thanks to a bubble that Western banks and perhaps some foreign SWFs had a big hand in creating — led to Americans everywhere feeling increased financial strain. Tax revenue went down in virtually every state in the country. In fact, the correlation between the rising prices from the commodities bubble and declining tax revenues is remarkable.

According to the Rockefeller Institute, which tracks state revenue collection, the rate of growth for state taxes hit its lowest point in five years in the first quarter of 2008, which is when oil began its surge from around $75 to $149 a barrel.

In the second quarter the institute reported continued slowdowns, and in the third quarter, the quarter in which oil reached that high of $149, overall tax growth was more or less flat, at 0.1 percent, the lowest rate since the bursting of the tech bubble in 2001–2.

Obviously the collapse of the housing market around that time was a major factor in all of this, but surging energy prices impacting the entire economy — forcing business and consumer spending alike to retract — also had to be crucial.

Around this time, state and municipal executives began putting their infrastructure assets up to lease — essentially for sale, since the proposed leases in some cases were seventy-five years or longer. And in virtually every case that I've been able to find, the local legislature was never informed who the true owners of these leases were. Probably the best example of this is the notorious Chicago parking meter deal, a deal that would have been a hideous betrayal even without the foreign ownership angle. It was a blitzkrieg rip-off that would provide the blueprint for increasingly broke-ass America to carry lots of these prized toasters to the proverbial pawnshop.

"I was in my office on a Monday," says Rey Colon, an alderman from Chicago's Thirty-fifth Ward, "when I got a call that there was going to be a special meeting of the Finance Committee. I didn't know what it was about."

It was December 1, 2008. That morning would be the first time that the Chicago City Council would be formally notified that Mayor Richard Daley had struck a deal with Morgan Stanley to lease all of Chicago's parking meters for seventy-five years. The final amount of the bid was $1,156,500,000, a lump sum to be paid to the city of Chicago for seventy-five years' worth of parking meter revenue.

Finance Committee chairman Ed Burke had the job of informing the other aldermen about the timetable of the deal. Early that morning he called for a special meeting of the Finance Committee that Wednesday, to discuss the deal. That afternoon the mayor's office submitted paperwork calling for a meeting of the whole City Council the day after the Finance Committee meeting, on December 4, "for the sole purpose" of approving the agreement.

"I mean, they told us about this on a Monday, and it's like we had to vote on a Wednesday or a Thursday," says Colon.

"We basically had three days to consider the deal," says fellow alderman Leslie Hairston.

On that Tuesday, December 2, Daley held a press conference and said the deal was happening "just at the right time" because the city was in a budget crunch and needed to pay for social services.

He then gave them the details: he had arranged a lease deal with Morgan Stanley, which put together a consortium of investors which in turn put a newly created company called Chicago Parking Meters LLC in charge of the city's meters. There was no mention of who the investors were or who the other bidders might have been.

The next day the Finance Committee met to review the deal, and ten minutes into the meeting some aldermen began to protest that they hadn't even seen copies of the agreement. Copies were hastily made of a very short document giving almost nothing in the way of detail.

"It was like an eight-page paper," says Colon.

The Chicago Reader's write-up of the meeting describes the commotion that followed:

"We're rushing through this," says Alderman Robert Fioretti. "Why?""We've been working on this for the better part of a year, so we haven't been hasty," [city chief financial officer Paul] Volpe insists."You had a year, but you're giving us two days," says Alderman Ike Carothers.To help aldermen understand some of the terms, Jim McDonald, a lawyer for the city, reads some legalese from the proposed agreement.[Alderman Billy] Ocasio bellows: "What does that all mean?"

The aldermen are told by CFO Volpe that the reason the deal has to be rushed is that a sudden change in interest rates could cost the city later on, which makes one wonder about Volpe's qualifications for the CFO job — this was in the wake of the financial crash, and interest rates were at rock bottom, meaning the city stood only to lose money by hurrying. Higher interest rates would have allowed them to use the interest on the lump payment to fill their budget gaps, rather than the principal of the payment itself.

Again, the council at this time has no idea who's actually behind the deal. "We were never informed," says Hairston. "Not even later."

Nonetheless, the measure ended up passing 40–5, with Hairston and Colon being among the votes against. I contacted virtually all of the aldermen who voted yes on the deal, and none of them would speak with me.

Mayor Daley, who had already signed similar lease deals for the Chicago Skyway and a series of city-owned parking garages, had been working on this deal for more than a year. He approached a series of investment banks and companies and invited them to submit bids on seventy-five years' worth of revenue on the city's 36,000 parking meters. Morgan Stanley was one of those companies.

Here's where it gets interesting. What Morgan Stanley has to do from there is two things. One, it has to raise a shitload of money. And two, it has to find a public face for those investors, a "management company" that will be presented to the public as the lessee in the deal.

Part one of that process involved the bank's Infrastructure group going on a road tour to ask people with lots of cash to pony up. It was these guys from Morgan's Infrastructure desk who took their presentation to the Middle East and pitched Chicago's parking meters to a room full of bankers and analysts in Abu Dhabi, the Abu Dhabi Investment Authority, who ultimately agreed to purchase a large stake.

Here's how they pulled off the paperwork in this deal. It's really brilliant.

At the time the deal was voted on in December 2008, an "Abu Dhabi entity," according to the mayor's office, had just a 6 percent stake in the deal. Spokesman Peter Scales of the Chicago mayor's office has declined to date to identify which entity that was, but by sifting through the disclosure documents, we can find a few possibilities, including a group called Cavendish Limited that is headquartered in Abu Dhabi.

Apart from that, most of the investors in the parking meter deal at the time it was voted on look like they were either American or from nations with relatively uncomplicated relationships with America. The Teacher Retirement System of Texas had a significant stake in one of the Morgan Stanley funds at the time of the sale, as did the Victorian Funds Management Corporation of Australia and Morgan Stanley itself. A Mitsubishi fund called Mitsubishi UFJ Financial Group also had a stake. There were a variety of other German and Australian investors.

All of these companies together put up the $1.2 billion or so to win the bid, and once they secured the deal, they created Chicago Parking Meters LLC, a new entity, which in turn hired an existing parking management company called LAZ to run the meter system in place of city run parking police. The press stories about the deal invariably reported only that the city of Chicago had leased its parking meters to some combination of Morgan Stanley, Chicago Parking Meters LLC, and LAZ. A Chicago Sun-Times piece at the time read:

Under questioning from Finance Committee Chairman Edward M. Burke (14th), top mayoral aides acknowledged that the partnership that includes Morgan Stanley Infrastructure Partners and LAZ Parking recently formed a limited liability corporation in Delaware, but never bothered to register in Illinois.

But two months after the deal, in February 2009, the ownership structure completely changed. According to Scales in the mayor's press office:

In this case, after the Morgan Stanley investor group's $1.15 billion bid was accepted and approved by the City in December 2008, Morgan Stanley sought new investors to provide additional capital and reduce their investment exposure — again, not an unusual move. So, while a group of several Morgan Stanley infrastructure funds owned 100% of Chicago Parking Meters, LLC in December 2008, by February 2009, they had located a minority investor — Deeside Investments, Inc. — to accept 49.9% ownership. Tannadice Investments, a subsidiary of the government-owned Abu Dhabi Investment Authority, owns a 49.9% interest in Deeside.

So basically Morgan Stanley found a bunch of investors, including themselves, to put up over a billion dollars in December 2008; a big chunk of those investors then bailed out to make way in February 2009 for this Deeside Investments, which was 49.9 percent owned by Abu Dhabi and 50.1 percent owned by a company called Redoma SARL, about which nothing was known except that it had an address in Luxembourg.

Scales added that after this bait and switch, the original 6 percent Abu Dhabi "entity" reduced its stake by roughly half after Tannadice got involved. According to my math, that still makes Abu Dhabi– based investors at least 30 percent owners of Chicago's parking meters. God knows who the other real owners are.

Now comes the really fun part — how crappy the deal was for other reasons.

To start with something simple, it changed some basic traditions of local Chicago politics. Aldermen who used to have the power to close streets for fairs and festivals or change meter schedules now cannot — or if they do, they have to compensate Chicago Parking Meters LLC for its loss of revenue.

So, for example, when the new ownership told Alderman Scott Waguespack that it wanted to change the meter schedule from 9 a.m. to 6 p.m. Monday through Saturday to 8 a.m. to 9 p.m. seven days a week, the alderman balked and said he'd rather keep the old schedule, at least for 270 of his meters. Chicago Parking Meters then informed him that if he wanted to do that, he would have to pay the company $608,000 over three years.

The bigger problem was that Chicago sold out way too cheap. Daley and Co. got roughly $1.2 billion for seventy-five years' worth of revenue from 36,000 parking meters. But by hook or crook various aldermen began to find out that Daley had vastly undervalued the meter revenue.

When Waguespack did the math on that $608,000 he was going to be charged, he discovered that the company valued the meters at about 39¢ an hour, which for 36,000 meters works out to $66 million a year, or about $5 billion over the life of the contract.

"When it comes to finding a figure for the citizens of Chicago, they say the meters are worth $1.16 billion," Waguespack said shortly after the deal. "But when it comes to finding a figure to cover Morgan Stanley, they say they're worth, what, $5 billion? Who are they looking out for, the residents or Morgan Stanley?"

The city inspector at the time, David Hoffman, subsequently did a study of the meter deal and concluded that Daley sold the meters for at least $974 million too little. "The city failed to make a calculation of what the value of the parking meter system was to the city," Hoffman said.

What's even worse is this — if they really needed the up-front cash, why sell the meters at all? Why not just issue a bond to borrow money against future revenue collection, so that the city can maintain possession of the rights to park on its own streets?

"There's no reason they had to do it this way," says Clint Krislov, who's suing the city and the state on the grounds that the deal is unconstitutional.

When they asked why the city didn't just do a bond issue, some of the aldermen say they never got an answer.

"You'd have to ask the mayor that," says Colon.

But the most obnoxious part of the deal is that the city is now forced to cede control of their streets to a virtually unaccountable private and at least partially foreign-owned company. Written into the original deal were drastic price increases. In Hairston's and Colon's neighborhoods, meter rates went from 25¢ an hour to $1.00 an hour the first year, and to $1.20 an hour the year after that. And again, the city has no power to close streets, remove or move meters, or really do anything without asking the permission of Chicago Parking Meters LLC.

Colon, whose neighborhood had an arts festival last year, will probably avoid festivals in the future that involve street closings.

"It's just something that's going to be hard from now on," he says.

In the first year of the deal, Alderman Hairston went to a dinner on Wacker Drive near the Sears Tower (now the Willis Tower, renamed after a London-based insurer), parked her car, and pressed the "max" button on a meter, indicating she wanted to stay until the end of that night's meter period. She got a bill for $32.50, as Chicago Parking Meters LLC charged her for parking overnight.

"There are so many problems — I've had so many problems with them," says Hairston. "It tells you you've got eight minutes left, you get back in seven, and it charges you for the extra hour. Or you don't get a receipt. It's crazy."

But to me, the absolute best detail in this whole deal is the end of holidays. No more free parking on Sunday. No more free parking on Christmas or Easter. And even in Illinois, no free parking on days celebrating, let's say, a certain local hero.

"Not even on Lincoln's birthday," laughs Krislov.

"Not even on Lincoln's birthday," sighs Colon.

Wanna take Lincoln's birthday off? Sorry, America — fuck you, pay me! And here's the last very funny detail in this whole business. It was the grand plan of CFO Volpe to patch the budget hole with the interest earned on that big pile of cash. But interest rates stayed in the tank, and so the city was forced to raid the actual principal. In a few years, the money will probably be gone.

"We did have a big hole in the budget," admits Colon. "But this didn't fix the problem. We might still have the same hole next year, and then where will the money come from?"

Bizarrely, a month and a half or so after this deal was done, a gloating Mayor Daley decided to offer some advice to the newly inaugurated President Obama, also an Illinois native. He told Obama he needed to "think outside the box" to solve the country's revenue problems.

"If they start leasing public assets — every city, every county, every state, and the federal government — you would not have to raise any taxes whatsoever," he says. "You would have more infrastructure money that way than any other way in the nation."

And America is taking Daley's advice. At this writing Nashville and Pittsburgh are speeding ahead with their own parking meter deals, as is L.A. New York has considered it, and the city of Miami just announced its own plans for a leasing deal. There are now highways, airports, parking garages, toll roads — almost everything you can think of that isn't nailed down and some things that are — for sale, to bidders unknown, around the world.

When I told Pennsylvania state representative Joseph Markosek that someone had been pitching the Pennsylvania Turnpike to Middle Eastern investors, he laughed.

"No kidding," he said. "That's interesting."

Markosek was one of the leading figures in killing Governor Ed Rendell's deal to sell off the turnpike, but even he didn't know who the buyers were going to be. He knew that Morgan Stanley was involved, but that was about it. Mostly he just thought it was a bad idea on general principle. "It would have been a bad deal for Pennsylvania," says Markosek. "There's a lot of speculation that the governor would have just taken that lump sum and used it to balance the budget this year, because he has a significant problem with the budget this year. But that would have left us with seventy-four more years on the lease."

The reason these lease deals happen is the same reason the investment banks made bad investments in mortgage-backed crap that was sure to blow up later, but provided big bonuses today — because the politicians making these deals, the Rendells and Daleys, are going to be long gone into retirement by the time the real bill comes due.

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